The police arrested the chief executive and an executive director of state-run Bank of Maharashtra on Wednesday, accusing them of misusing their authority in making loans to a property developer.
Authorities have stepped up scrutiny of the state banking sector after a more than $2 billion fraud unearthed in Punjab National Bank, the second-largest state-run lender, this year.
Bank of Maharashtra Chief Executive Officer Ravindra Marathe and an executive director, Rajendra Gupta, were among six people arrested, police said.
Among the rest are Sushil Muhnot, a former chairman and managing director of the bank, a manager at the bank, and a chartered accountant and an employee of D.S. Kulkarni Developers Ltd (DSKDL), police said.
"Bank officers colluded with DSKDL by misusing their power and authority with dishonest and fraudulent intention," the police said in a statement.
Bank officials at the offices of Marathe and Gupta declined to comment. Muhnot could not be reached, and calls to the developer's headquarters were not answered.
Current and former officials at some other state lenders, including IDBI Bank, Indian Bank, Syndicate Bank and Canara Bank have been investigated over alleged loan fraud cases.
State-run banks have reported 8,670 cases of fraudulent loans totalling 612.6 billion rupees ($9 billion) over five financial years up to March 31, 2017, central bank data shows.